Christian faithful from around the world descended on the traditional birthplace of Jesus, trying to lift spirits on a holiday dampened by the fighting.

But c rowds were thin and hotel rooms were empty. While the annual festivities in Bethlehem's Manger Square went on, other celebrations in the city were cancelled or toned down.

"There's lights, there's carols, but there's an underlying sense of tension," said Paul Haines of Cornwall, who arrived in Bethlehem following a four-month trek from Rome.

Bethlehem has been a focal point for clashes between Israeli troops and Palestinian protesters during a three-month wave of violence that has gripped the region.

The city was quiet on Christmas Eve, although violence raged elsewhere in the West Bank.

Israeli authorities said three Palestinian assailants were killed as they carried out or attempted stabbing or car-ramming attacks against Israeli security personnel.

And a fourth Palestinian was killed in clashes with Israeli troops, a Palestinian hospital official said. Two Israeli security guards and a soldier were wounded.

Lisette Rossman, a 22-year-old student from Albuquerque, New Mexico, said the violence made her think twice about visiting a friend studying in Jerusalem.

She said she was glad she made the trip because "it was one of my dreams to come here".

Since mid-September, Palestinian attacks, mostly stabbings and shootings, have killed 20 Israelis, while Israeli fire has killed 124 Palestinians, among them 85 said by Israel to be attackers. The rest were killed in clashes with Israeli forces.

Israel accuses Palestinian leaders of inciting the violence. The Palestinians say it is the result of nearly 50 years of military occupation.

In Manger Square, local activists placed an olive tree they said was uprooted by the Israeli army in a nearby village, and surrounded it with barbed wire and decorated it with spent tear gas canisters fired by Israeli troops and photographs of Palestinians killed or arrested in recent violence.

"We're in Bethlehem celebrating Christmas, celebrating the birthday of our lord Jesus Christ. This is the birthplace of the king of peace, so what we want is peace," said Rula Maayah, the Palestinian tourism minister.

In the evening, several thousand people crowded into Manger Square, admiring the town's glittering Christmas tree and listening to holiday music played by marching bands and scout troops.

Palestinian vendors offered coffee, tea and Santa hats, while young children sold sticks of chewing gum.

But at 9pm, traditionally a bustling time of the evening, there were few tourists to drink local wine sold on the square or to eat freshly fried falafel.

As the festivities got under way, Miral Siriani, a 35-year-old publicist from Jerusalem, said she was relieved to get a break from three months of tension that has included numerous attacks in her city.

"I feel safe in Bethlehem," she said.

In recent years, Bethlehem had enjoyed a relative calm and thousands of revellers and pilgrims poured into Manger Square each Christmas.

But hotel owners complained of sagging business this Christmas season.

Xavier Abu Eid, a Palestinian official, said hotel bookings were down 25% from last year, which itself was weak following a war between Israel and Palestinian militants in the Gaza Strip several months earlier.

Latin Patriarch Fouad Twal led a procession from his Jerusalem headquarters into Bethlehem, passing through a military checkpoint and past Israel's concrete separation barrier, which surrounds much of the town.

Israel built the barrier a decade ago to stop a wave of suicide bombings. Palestinians say the structure has stifled Bethlehem's economy.

In Bethlehem, the patriarch wished "peace and love" for all and led worshippers in a Midnight Mass at the Church of the Nativity, built at the spot where Christians believe Jesus was born.